Sustainable Pensions

It may be that those withdrawing large amounts of cash from their pensions have other sources of retirement income; multiple pension pots or final salary pensions for example. If not, then these retirees could be in trouble. Depending on how long they live after retirement, and how their investments are spread, their pension funds could be depleted while they are still needed. As pointed out by Schroders:

“The Association of British Insurers is concerned that savers taking more than 10% in just three months, assuming no other sources of income, is far too high. At this rate, a £100,000 pot would be reduced to £60,000 after a year and would be gone in two and half years, or maybe a month or two longer if a little investment growth is included. Even the more moderate scenarios in the data may cause concern with one in five pots seeing withdrawal rates of 4% to 8%, if the figures are annualised”.

Avoiding Temptation

It can be tempting to take out big lump sums once you retire to do the things you always wanted to, like take a once-a-lifetime trip or buy a dream car. This is not necessarily a bad thing to do, but it’s important to think long term and to discuss your retirement plans with financial advisers before taking a potentially damaging amount from your pension pot.